Reduction in vehicle's value

Quincy said the agreed value had not been properly notified to him when his policy was renewed. 

Reduction in vehicle's value

Quincy held insurance on his vehicle.

In December 2024, following an accident, Quincy made a claim to the insurer for damage to the vehicle. 

The insurer accepted the claim and decided that the vehicle was not economic to repair. As a result, it offered Quincy the agreed value of the vehicle of $19,230, less the policy excess of $500. 

Quincy made a complaint, saying the agreed value had not been properly notified to him on renewal. This was because until 2 weeks prior to the accident, the agreed value was $27,980, meaning the agreed value had reduced more than 30%. The insurer increased its offer to $22,000, less the $500 policy excess, based on the market value of the vehicle. Quincy declined the offer.

The case manager’s assessment

Generally, it is up to an insured person to read and understand the terms and conditions of the policy. If the insured is not satisfied or does not accept the terms provided, it is their right to seek insurance elsewhere.

However, the law requires onerous or unusual clauses not to be hidden within the standard terms or conditions; they must be brought fairly to the notice of the insured. If an exclusion or limitation is onerous or unusual, an insurer must ensure the clause is specifically drawn to the attention of the insured.

In November 2024, the insurer notified Quincy of the policy renewal and stated the policy terms had changed and needed to be checked but did not specify any change to the agreed value. The agreed value figure of $19,230 was on page 5 of the notice. 

Quincy arranged the policy in December 2021, with an agreed value of $35,000. In December 2022, the policy renewed with the same agreed value of $35,000. In December 2023, the policy renewed with an agreed value of $27,980 – a 20% decrease in the agreed value. 

The 2024 renewal notice meant that, at the time of the damage, the agreed value was $19,230 – being a 31% decrease in the agreed value.

In some cases, the IFSO Scheme has found that significant drops in agreed values are unusual and need to be specifically brought to an insured’s attention. 

However, this was not the first renewal of the policy, and the policy had previously experienced a significant drop in the agreed value the year before. In addition, the insurer had offered to pay Quincy the market value of the vehicle, less the excess. This was the remedy that the IFSO Scheme is most likely to award where the insurer was responsible for a vehicle being underinsured, and where it had not given sufficient notice of a significant decrease in the agreed value of a vehicle. 

While Quincy said that he could not replace the vehicle for $22,000, this was not the test for market value. Instead, what needed to be determined was the value of the vehicle, just prior to the damage occurring. The insurer provided an independent valuation, to support the offer, meaning its offer of $22,000 less the policy excess of $500 was fair and reasonable in all the circumstances.

Quincy's complaint was not upheld, because the insurer had already offered to settle the claim based on the vehicle’s market value, which was fair and reasonable in all the circumstances.

Complaint Not Upheld

*Name has been changed

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The IFSO Scheme regularly investigates disputes about insurers reducing vehicle values at the time of policy renewal. Each case is different. When considering what outcome is fair and reasonable in these cases, we take into account the following factors: 

  • If the vehicle is substantially underinsured based on the market value;
  • If the vehicle was not new and had experienced a significant decrease in the agreed value on renewal (more than 20%);
  • How policy changes were presented in the renewal documents (for instance if a change in agreed value is mentioned on the front page, or much further into the renewal documents);
  • How many renewal cycles have occurred;
  • Whether there had been significant decreases of the agreed value in the past;
  • Whether the insured had previously altered the agreed value;
  • If the insurer is responsible for the underinsurance; and
  • Any other factors the IFSO Scheme considers relevant.

Taking into account the factors above, if compensation is recommended by the IFSO Scheme, it will usually be the lesser of: 

  • the market value of the vehicle, or 
  • the agreed value of the vehicle in the prior policy period. 

See the full case study.